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Executive Compensation and Product Market Competition

Vicente Cuñat () and Maria Guadalupe ()

CEP Discussion Papers from Centre for Economic Performance, LSE

Abstract: The aim of this paper is to study the effects of product market competition on the explicit compensationpackages that firms offer to their executives. In order to measure the net effect of competition we use twodifferent identification strategies. The first exploits cross sectoral variation in concentration ratios and thepanel nature of the dataset. The second uses as a quasi-natural experiment the deregulations that occurredin the banking and financial sectors in the nineties and estimates differences in differences coefficients. Ourresults show that a higher level of product market competition increases the performance pay sensitivity ofexecutive compensation schemes, and they hold through a number of performance measures such as stockoptions or bonus. The results are robust to a number of specification checks.

Keywords: Executive compensation; product market competition; performance related pay (search for similar items in EconPapers)
JEL-codes: J31 L1 M52 (search for similar items in EconPapers)
Date: 2004-02
New Economics Papers: this item is included in nep-bec and nep-com
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